Face To Face: Foster Denovo joins consolidation game

Foster Denovo chief executive Roger Brosch sits down with Will Robins to explain the business's plans for the future.

Foster Denovo is on the cusp of becoming a fully integrated business, with more than a few similarities to the incredibly successful model employed by St James’s Place.

Chief executive Roger Brosch explained to New Model Adviser® how the national advice firm will soon add its own platform to a proposition that already claims to uniquely integrate segregated fund mandates with its cashflow planning tool. It is this proposition Brosch will then present to a new pipeline of advice firm acquisition targets. His promise is that clients will get a cheaper deal on investments and platforms, and receive a financial planning service, even if not in an independent environment.

Foster Denovo is on the cusp of becoming a fully integrated business, with more than a few similarities to the incredibly successful model employed by St James’s Place.

Chief executive Roger Brosch explained to New Model Adviser® how the national advice firm will soon add its own platform to a proposition that already claims to uniquely integrate segregated fund mandates with its cashflow planning tool. It is this proposition Brosch will then present to a new pipeline of advice firm acquisition targets. His promise is that clients will get a cheaper deal on investments and platforms, and receive a financial planning service, even if not in an independent environment.

Who are your clients?

We have two major markets. The first is the employee benefits market, which is small to medium-sized businesses of up to 400 or 600 employees. We offer corporate advice services to that market through a brand called Secondsight. About 35% of our revenue [about £20 million this year] goes through Secondsight. The second is the private client market.

The employee benefits business provides workshops for employees. Where do people attending your workshops go if they need advice?

We offer them the routes of going to Unbiased, looking after themselves, or coming to see us. We explain the price difference between those options. A healthy percentage say: ‘actually we like what we hear, we’d like to engage with you.'

We don’t have a direct self-service option at the moment, but we have been in discussion with a number of parties as it’s something we would like to offer.

What does your advice process involve?

The process starts with cashflow modelling. We use Voyant, which is integrated with our technology and back office systems. We initially create a strategy document, which is quite detailed at a high level. It doesn’t go down to specific recommendations on products or investment, but it does talk strategically about the things clients should consider. Then if they wish to, we go through implementation and that will go down to a formal recommendation and advice on what vehicle, which investment solution and what product.

Which parts of the process do clients pay for and how much?

The initial meeting we normally provide just to get to know each other. We would then charge between £750 and £3,000 for the detailed strategy document. If somebody has a very complex situation then it would be towards the upper end. Assuming they then come back to us for the advice and go on to an ongoing service, we can discount that against our normal implementation fees, which are normally between 1% and 3%. Our average is 2.2% and we will often offset the strategy fee against that. It’s quite a rare occurrence that people don’t become a client of ours.

We have a ‘quantum’ and ‘select’ service. Quantum is the full holistic service that includes cashflow and clients receive a formal face-to-face review once or twice a year. For that we charge between 0.75% and 1%. The select service is a narrower service for clients who don’t have quite such complicated needs. For that we charge between 0.5% and 0.75%. 

 

Is there pressure on fees to go down?

The evidence is clear for us that price pressure is on investment solutions, platforms, technology and the capability that powers these things. But actually advice, we’ve found has gone up a little bit in the past few years. 

How do you operate client investments?

The Foster Denovo Investment Proposition is a panel of products and providers we review regularly. However, we choose to be restricted because we have our own fund management business called Sequel. Sequel is a discretionary managed Oeic and we have five mandates. There are three growth mandates and two income mandates, and it’s an Oeic structure.

We’ve designed the mandates to fit with our cashflow modelling. The cashflow says you need outcome X and we connect that directly to one of the mandates in our Oeic structure. Then we get a third-party fund manager to run those funds to that mandate. We’ve tried to create mandates that clients understand. People understand cash so we’ve designed the mandates so it’s cash plus a certain level of return: cash plus 2, cash plus 3.5, cash plus 5 and so on.

 

So, you’ve got a fund manager running each mandate…

If a manager doesn’t hit the mandates we can fire him or her so the money doesn’t have to move. It doesn’t have to be taken away from one discretionary fund manager (DFM) and given to another, it just stays where it is and we find another fund manager who will run it.  

How often do you fire managers?

We’ve only changed twice and that wasn’t for them not hitting the mandate. They’ve always hit the mandate in the nine years we’ve had Sequel, but we’ve changed it twice to reduce the price and to run the mandates with less risk.

The first three managers were Henderson, Schroders and Saracen. Then we moved them all to Saracen. Saracen ran all three for about five years and then about a year ago we moved them to Seneca, a smaller boutique.

The asset base is up to a quarter of a billion now. So, it’s at a level where you can negotiate very effectively on behalf of clients on price as well. 

Which platforms are you using?

We use several platforms at the moment but we are in the process of implementing our own. That will be delivered over the next six months or so. We are very excited about this because having taken control over the investment solution, we’re now going to take control over the price and the platform capability. That will complete the overall offering to clients. 

That means DFM, quality reporting, all of the tax planning tools that come with a retail platform, but at a price that will be compelling. And for some clients there won’t be a charge for it at all, because they’re not necessarily using all the benefits a platform provides. 

Should clients be paying for platforms?

There is a middle ground. There are some clients that would not really benefit from elements of what a platform provides. They don’t need the tools, functionality, they may not even need the depth of reporting.

If you’re basically in accumulation, you’re using one or two funds, do you really need a complicated, expensive platform to show you what that money’s doing and how it’s performing? No. But if you do need tax planning tools, if you do need quality detailed reporting, if you’ve got lots of assets that need to be consolidated, is a platform right for you and should you pay a sensible price for it? Absolutely. But we think that price should be half of what it is currently.

Have you made any acquisitions this year?

We’re on the acquisition trail as we speak. A big part of the next phase of our growth story is to acquire. We’ve been recruiting quite successfully as well. That, combined with our organic growth plan, is part of the next stage. We’re looking for acquisitions in the north west and the south west in particular and we are actively discussing opportunities to acquire in and around London as well. So, it’s quite exciting.

 

Would you get them to move on to your investment solution?

Only where it’s suitable for a client. We’re offering a very cost effective and much more targeted to cashflow modelling solution, so for the clients who need those two things, it would be a natural progression. It’s not for us to force it.

You have developed a highly integrated business but could potentially be buying firms that are extremely heterogeneous. Is that a challenge?

Just before we saw you, we were with a business that we’re getting to a heads of term stage with.

By the time we get to heads, we know so much about that business, I can be almost certain it’s culture compatible and it’s propositionally compatible. The offer we then make will be very attractive. Whereas, other acquirers just get some high-level numbers, chuck heads together that makes it look a little bit attractive and then they do the due diligence, which means they chip, chip, chip away.

We start by saying, we’re going to pay a fair price because we know with a level of certainty that it will work.

Roger's CV:

2005-present: Chief executive, Foster Denovo

1998- 2004: Distribution director, head of sales, Millfield Group

1992-1998: Regional director, General Assurance National

1986-1992: Branch manager, Financial Planning Services

Share this story

More Content

BUSINESS

Schroders faces investor backlash over family appointment

Schroders faces investor backlash over family appointment

Glass Lewis has urged Schroders investors to rebel against the appointment of the daughter of the late Bruno Schroder to its board and 'excessive' bonuses at the firm

ADVICE

FCA goes round in circles on contingent charging

FCA goes round in circles on contingent charging

In this week's podcast Ollie Smith is joined by NMA senior reporter Jack Gilbert to discuss the FCA's business plan, published last week.

twitter_banner

INVESTMENT